Financial Services Commission des Commission services financiers of Ontario de l’Ontario

Neutral Citation: 2008 ONFSCDRS 11

FSCO A07-000705

BETWEEN:

ALEXANDRA PEREIRA

Applicant

and

ECONOMICAL MUTUAL INSURANCE COMPANY

Insurer

Before: Suesan Alves

Heard: Written submissions were received by September 20, 2007.

Appearances: Joanne Witt for Ms. Pereira

Helen D. K. Friedman for Economical Mutual Insurance Company

Issue:

Alexandra Pereira was injured in a motor vehicle accident on April 3, 2006. She applied for arbitration in relation to her claims for weekly income replacement benefits and interest, payable under the Schedule.¹ She also claimed a special award under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

At the pre-hearing, Economical raised the issues of quantum and repayment of income replacement benefits, and these issues were added to the agenda of issues to be arbitrated without objection. Following the pre-hearing, counsel for the Applicant requested the deletion of these issues and the provision of an amended pre-hearing report. For the reasons which follow, I conclude that the issues raised by the Insurer should remain part of the agenda of issues to be arbitrated

The issue is:

Should the pre-hearing report be amended to delete the issues of quantum of the income replacement benefits and repayment of income replacement benefits?

Result:

The pre-hearing report should not be amended. The issues of quantum and repayment of income replacement benefits remain issues to be determined in this arbitration.

EVIDENCE AND ANALYSIS:

Ms. Pereira applied to Economical for income replacement benefits based on her earnings from self-employment as the manager of a carpentry business and possibly also on her employment earnings as a waitress.

Economical retained an accountant to calculate Ms. Pereira’s income replacement benefit. The accountant asked Ms. Pereira to provide documentation in order to perform the calculation. Economical alleges that Ms. Pereira failed to provide necessary documentation.

Ms. Pereira applied for arbitration of her claims for income replacement benefits, interest, expenses and a special award. In its Response, Economical set out the history of its requests for financial documentation and alleged that Ms. Pereira had not complied with her obligations to provide documentation as required by section 33 of the Schedule.

At some point prior to the pre-hearing, Economical advanced a payment of approximately $20,000 to Ms. Pereira in relation to her IRB claim, subject to her provision of certain documents.

At the pre-hearing, from the perspective of counsel for the Applicant, the amount of Ms. Pereira’s income replacement benefit had been quantified, her income replacement benefit claim was no longer in dispute, her business had closed, and the only remaining issue in dispute was the calculation of the interest which Economical owed Ms. Pereira.

However, counsel for Economical took a different view at the pre-hearing. Economical alleged that Ms. Pereira continued to earn income from self-employment, or that income continued to be attributed to her carpentry business. On this basis, Economical raised issues of the amount of the income replacement benefit, and claimed a repayment of the income replacement benefits which it had paid to Ms. Pereira.

Counsel for the Applicant expressed surprise at Economical’s position at the pre-hearing, but did not object to the inclusion of the issues raised by the Insurer.

On July 18, 2007, I issued a pre-hearing report in which the issues in dispute were identified as having been agreed upon and were set out as follows:

Has Mrs. Pereira complied with the requirements of section 33 of the Schedule with respect to her claim for income replacement benefits?
Mrs. Perreira claims entitlement to a weekly income replacement benefit in the amount of $400. What is the amount of weekly income replacement benefit that Mrs. Pereira is entitled to receive pursuant to section 6 of the Schedule?
Is Mrs. Pereira entitled to interest for the overdue payment of benefits pursuant to section 46(2) of the Schedule?
Is Economical liable to pay a special award pursuant to subsection 282(10) of the Insurance Act because it unreasonably withheld or delayed payments to Mrs. Pereira?
Once mediated, is Mrs. Pereira liable to repay Economical $27,600, the benefits she received based on error, pursuant to section 47 of the Schedule?
Which party is liable to pay the other’s expenses in respect of the arbitration under section 282(11) of the Insurance Act, R.S.O. 1990, c. I.8?

On August 20, 2007, counsel for the Applicant requested an amended report, removing the issues of quantum and repayment. She stated:

The purpose of this pre-hearing was to discuss the issues underlying the request for arbitration due to Ms. Pereira’s injuries in a motor vehicle accident on April 3, 2006. The only issue that has been applied for and was still to be arbitrated was the interest owed to Ms. Pereira under the Act. Quantum of the income replacement benefit was not one of the issues applied for, nor was repayment.

As such, neither of these issues should have been discussed at the pre-hearing. At this time we are objecting to their addition to the discussion and subsequent report and request that an amended report, removing these issues, be sent out.

Counsel were asked to provide written submissions. In summary, counsel for the Insurer submitted that the Applicant’s objection was made over 30 days after the pre-hearing report had been issued; that “identifying and obtaining agreement as to the issues for arbitration” is one of the matters to be addressed at the pre-hearing, as stated in the Notice of Pre-Hearing, and that the pre-hearing report accurately reflected what had in fact taken place at the pre-hearing.

The Financial Services Commission of Ontario sent a Notice of the Pre-hearing discussion to the parties and to their counsel. That Notice clearly identifies one of the purposes of the pre-hearing discussion as “identifying and obtaining agreement as to the issues for arbitration.” I find the appropriate time for counsel for the Applicant to have objected to the inclusion of these issues was at the pre-hearing. I find that in failing to address this issue at that time, she waived her right to do so. In the event I am wrong, I will now deal with the issue of whether the scope of the arbitration can be determined by the Applicant alone.

Law:

This motion once again raises the issue as to which party determines the scope of an arbitration hearing at the Financial Services Commission of Ontario. In 1992, early in the dispute resolution scheme provided under the Insurance Act, the Director of Arbitrations considered this question in the case of Decicco and State Farm Mutual Automobile Insurance Company, (OIC P-000277, February 21, 1992)

In that case, the applicant applied for arbitration in relation to her entitlement to care benefits. At the pre-hearing, the insurer sought to add its claim for repayment of care benefits as well as disputes concerning her entitlement to transportation and rehabilitation expenses. The applicant objected. The pre-hearing arbitrator held that the insurer could add the issue of repayment of care benefits to the agenda of issues to be arbitrated, because that issue naturally and consequentially flowed from the applicant’s claim for entitlement to care benefits. However, the other issues would not be added as they were new issues which were outside the scope of the issues the applicant wanted arbitrated. The insurer appealed, and the Director of Arbitrations upheld the decision of the pre-hearing arbitrator.

The Director of Arbitrations considered the issue in the context of section 282(3) of the Insurance Act. That section provided that the arbitrator “shall determine all issues in dispute and such other issues as the parties may agree.” [emphasis added] The Director considered the competing positions of the parties in ascertaining the intention of the Legislature. There was an “open” approach in which both parties had the right to raise any dispute between them, as they could in a court action. There was a “restrictive” approach, in which the issues to be arbitrated were limited to those raised by the applicant, and a “flow” approach in which the insurer could add those issues which reasonably and consequentially flowed from the issues which the applicant brought to the arbitration, together with those issues which both parties agreed would be arbitrated.

The Director of Arbitrations reasoned that under the Act, insured persons were given the right to choose to pursue their disputes with insurers in court or in arbitration and, for that choice to be meaningful, the “flow” approach must have been the one the Legislature intended. She held that as the insurer had the right to pursue any disputes it wished in a court proceeding, this interpretation did not deprive the insurer of any remedies.

In 1996, section 282(3) of the Insurance Act , R.S.O. 1990, c. I.8, was amended to state “The arbitrator shall determine all issues in dispute, whether the issues are raised by the insured person or the insurer. 1996, c. 21, s. 38 (2). [emphasis added]

In the case of Nand and State Farm Mutual Automobile Insurance Company, (OIC A96‑001835, July 28, 1997), Arbitrator Baltman, as she then was, held that “the amendment marks a new and significantly broader approach to setting the parameters of an arbitration.” There was “a clear movement toward an inclusive approach to the hearing. Once an Applicant has opted for arbitration, this amendment requires the arbitrator to determine “all” issues in dispute.”

In that case, Mr. Nand applied for arbitration on the narrow issue of whether CPP benefits were collateral benefits which were deductible from his income replacement benefits. This was a question of law which would be argued in less than a day. Arbitrator Baltman allowed State Farm to add the issue of his entitlement to income replacement benefits, acknowledging that this would lead to a significant expansion of the scope and length of the hearing.

She held that this outcome was preferable to the situation in which a further arbitration proceeding would be required to establish Mr. Nand’s entitlement, resulting in delay, split proceedings and at least some duplication of time and cost, given that the public policy goal underlying the new provision was to “encourage speedy and effective dispute resolution.”

Despite the mandatory language used in the 1996 amendment, arbitrators have held that they retain a discretion to determine the scope of the arbitration. For example, in Nand, Arbitrator Baltman held that: “The insurer must satisfy the arbitrator that there is a genuine issue for determination, and that the matter has not been raised late in the proceeding for tactical reasons.”

In the case of Graham and State Farm Mutual Automobile Insurance Company, (FSCO A04-002269, July 26, 2005), Arbitrator Wilson held that, “there must be some consideration of the merit of the proposed amendment since otherwise meritless claims could be added as a tactic of delay or harassment, leading to a potential abuse of the arbitration process”

Analysis and conclusion:

Based on section 282(3) of the Insurance Act, as amended in 1996, I find that the issues raised by the Insurer in this case should be included in the agenda of issues to be arbitrated.

I am satisfied that on the face of it there is a genuine dispute which should be determined by the hearing arbitrator. There is a dispute between the parties as to whether Ms. Pereira’s business has closed or remains open, whether it continues to earn income and if so whether such income is attributable to the business. The determination of this dispute is likely to have an impact on the questions of both quantum and repayment of her income replacement benefit.

From a practical point of view, adding these issues now will likely benefit both parties. If the Applicant were to be successful on her claim for entitlement to benefits while the quantum dispute remained unresolved, a further hearing would be required. It is cheaper and more expeditious to deal with these disputes in one proceeding, than to have multiple hearings.

I am not persuaded that the issue is being raised for tactical reasons or that there is some other basis for me to exercise my discretion to refuse the inclusion of these issues. I note that in Graham, Arbitrator Wilson stated that “If there are serious shortcomings in the proposed issue, such as a failure to mediate the issue, it should not be added.” I agree that the issue of repayment must be mediated before it proceeds to the hearing. However, with a view to saving the parties the time and expenses of resuming the pre-hearing after mediation, I have ruled that once mediated, the issue of repayment is added. I believe that as a pre-hearing arbitrator I have the authority to make such an order.

For these reasons, I conclude that the quantum and repayment issues which the Insurer raised should remain part of the agenda of issues to be arbitrated. I therefore decline to amend the pre-hearing report as requested.

Expenses:

I leave the issue of the expenses of this motion in the discretion of the hearing arbitrator.

January 25, 2008

Suesan Alves Arbitrator

Date